Medicaid Pushes States Off ‘Cliff’ as Governors Seek Cuts

Washington State may not pay for glasses anymore. Massachusetts already chopped dentures. As of Oct. 1, North Carolina no longer covers surgery for the clinically obese.

Governors nationwide are taking a scalpel to Medicaid, the jointly run state and federal health-care program for 48 million poor Americans, half of whom are children. The single biggest expense for states, Medicaid consumes about 22 percent of their total $1.6 trillion in expenditures, more than what is allocated to elementary and secondary education, according to a National Governors Association report.

With federal stimulus funds to help states pay higher Medicaid costs running out June 30, “we’re heading for a cliff in July,” said Brian Sigritz, director of state fiscal studies at the National Association of State Budget Officers in Washington.

Medicaid enrollment has jumped 13.6 percent since the recession began in 2007, according to the Henry J. Kaiser Family Foundation based in Menlo Park, California. The 2009 federal stimulus bill and a supplemental appropriation this year allocated a total of $103 billion for Medicaid. With that funding ending, state health-care expenditures may climb as much as 25 percent in fiscal 2012, according to a Kaiser report.

Budget Deficits

Governors are slashing Medicaid to close as much as $140 billion in budget deficits for the 12 months starting in July 2012, after eliminating $130 billion in gaps this year, according to the Center on Budget and Policy Priorities, a Washington-based research group. Spending is being cut even though state revenues rose for the three quarters ended Sept. 30, as the U.S. recovered from the longest recession since the Great Depression, the Nelson A. Rockefeller Institute of Government in Albany, New York, said in a Nov. 30 report.

“I don’t think most states want to sentence people to death,” said Judy Solomon, co-director of health policy at the Center on Budget and Policy. “But what we see is a pretty bleak picture of tough cuts made this year, and next year’s numbers look worse.”

Washington Governor Christine Gregoire proposed cuts of $112.9 million in vision, hearing and other benefits for her 1.1 million-member Medicaid program, according to Jim Stevenson, a spokesman for the health and social-services department. The state faces “devastating” cuts to close a $4.6 billion deficit in its two-year budget beginning July 1, Gregoire said Dec. 15.

California Cuts

In California, Governor Arnold Schwarzenegger proposed $980 million in savings on Medi-Cal, which covers 7.5 million people, after previously slicing $110 million for acupuncture, chiropractic and dental services in 2009. His Dec. 6 proposal included $100-a-day copayments for hospital stays and a limit of 10 doctor visits a year.

Spending on Medicaid nationwide rose 8.8 percent last year, the most since 2002, according to Kaiser. Nearly every state issued at least one new policy to cut program costs in the past two years, including benefit reductions, increased copays and lower reimbursements to health-care providers.

“There’s no elegant solution on the horizon,” said John Thomasian, director of the Center for Best Practices at the National Governors Association in Washington.

Arizona will reduce payments to doctors, hospitals and ambulance services by 5 percent beginning April 1, according to Monica Coury, a spokeswoman for the Arizona Health Care Cost Containment System, the Medicaid agency.

Denying Transplants

The state stopped paying for heart, liver and other transplants on Oct. 1, prompting criticism of Governor Jan Brewer, a Republican.

“We are the only state that has cut transplant care,” state Representative Anna Tovar, a Democrat from Tolleson who received a stem-cell transplant, said in a telephone interview. “Who are they to put a figure on a person’s life?”

Under the 2009 stimulus bill and the 2010 health overhaul backed by President Barack Obama, states can’t reduce Medicaid eligibility below a prescribed level. Brewer, facing a $1 billion budget deficit, said she’ll ask federal permission to remove 300,000 people from the 1.3 million-member program. The cuts would be limited to those who have incomes higher that the federally mandated minimum, according to Coury.

Some states may seek help from private insurers to reduce expenses by managing illness through prevention and earlier intervention, according to Vernon Smith, Michigan’s former Medicaid director and now managing principal of Health Management Associates in Lansing, Michigan.

UnitedHealth ‘Opportunity’

UnitedHealth Group Inc., the biggest U.S. insurer by sales, covers 3 million Medicaid participants and sees cost-control pressure on states as an “opportunity,” Gail Boudreaux, the president of the company’s commercial division, told an investor conference Nov. 30. The company, based in Minnetonka, Minnesota, projects enrollment in its Medicaid plans to rise by as much as 300,000 in 2011, she said.

Every state has a unique formula for calculating the federal contribution for Medicaid. The 12 with the highest personal income, including California, New York, New Jersey, Connecticut and Colorado, typically depend on the U.S. government for about half their expenditures.

Under the stimulus, the federal share rose to about 62 percent. In July it will return to the old formula, forcing the states to pick up 50 percent of the total cost of the program instead of 38 percent.

New York Governor-elect Andrew Cuomo has proposed cutting costs by shifting patients to less expensive alternatives, such as to clinics from hospitals when appropriate. He is to present his state’s budget on Feb. 10. Two legislative committees in Illinois are examining ways to reduce a $200 million deficit this year in its 2.9 million-member Medicaid program, according to Democratic State Representative Frank Mautino.

U.S. Grants

Florida’s governor-elect, Rick Scott, a former hospital executive, and Texas Governor Rick Perry have proposed a system of federal grants that would allow states to allocate funds as they wish. Perry said his state’s $30 billion in Medicaid spending could be cut in half if allowed to make its own spending choices.

“There will be innovation breaking out all over the country,” Perry said in a November interview.

States face the prospect of enrolling 16 million more people in Medicaid beginning in 2014 under the Patient Protection and Affordable Care Act, the health-care law Obama signed in March. It expands coverage to include certain childless adults under 65, according to Foley & Lardner LLP, a law firm in Milwaukee. The federal government will pay 100 percent of the increased expense for the first three years.

$3.5 Billion

California, which expects 1.6 million people added to Medi- Cal by the new law, estimates the expansion will cost $3.5 billion a year in 2020, when the federal subsidy drops to 90 percent, according H.D. Palmer, a Finance Department spokesman.

State lawmakers deferred action on Schwarzenegger’s proposed reductions until Governor-elect Jerry Brown proposes his budget on Jan. 10, according to Nathan Barankin, a spokesman for Senate President Darrell Steinberg. Evan Westrup, a spokesman for Brown, said the incoming governor hasn’t made his plans for health-care savings public.

“Due to unprecedented fiscal challenges, we’ve had to make some very difficult budget decisions,” Paulette Song, deputy communications director for the Massachusetts Executive Office of Health and Human Services, said in an e-mail from Boston.

Washington State may not pay for glasses anymore. Massachusetts already chopped dentures. As of Oct. 1, North Carolina no longer covers surgery for the clinically obese.Governors nationwide are taking a scalpel to Medicaid, the jointly run state and federal health-care...